John P. Watkins

Banking Ethics and the Goldman Rule

Insulating people from the effects of the crisis has left intact the habits of thought and the basic institutional structure. The continued reign of pecuniary values leaves intact the Goldman Rule: pursue profitable opportunities regardless the effects on others. Within a culture dominated by pecuniary values, profitable opportunities present a coercive force. Laissez-faire policies allow profitable pursuits without restraint. Subprime mortgages offered an opportunity to tap a new source of profits, namely, the increase in housing prices. Many financial institutions engaged in unscrupulous actions to convert household wealth into corporate profits. Efforts to reign in the industry remain wanting.

Corporate Profits and Personal Misery: Credit, Gender, and the Distribution of Income

Financial institutions engage in financial innovation to increase profits. The resulting increases in consumer debt, however, make low income groups vulnerable to declines in income; households headed by women are particularly vulnerable. Consumers are disadvantaged given the asymmetry between business and consumer choices. Consumers use credit for many reasons including pecuniary emulation and supporting others, support that often falls to women. The paper examines the ratio of debt to financial assets, the ratio of debt to income, the ratio of dept payments to income, and the rate of bankruptcy as indicators of the fragility of household balance sheets.

Quantitative Easing as a Means of Reducing Unemployment: A New Version of Trickle-Down Economics

Quantitative easing represents a variation of trickle-down economics. The presumption is that asset purchases by the Federal Reserve (Fed) benefit everyone. The policy involves increasing the prices of treasury bonds and mortgage-backed assets to stimulate output and employment. Quantitative easing acts on balance sheets. It works through the price system by affecting the structure of prices, and hence wealth. The unemployed, lacking assets, are not directly affected by changes in asset prices. The unemployed are dependent on policies that generate income. While Fed intervention prevented a collapse in asset prices, its effect on the real economy remains tenuous. Data suggests that the policy has exacerbated the inequality in the distribution of wealth and income, has done little to reduce unemployment, and has violated the principles of social justice. The policy contrast sharply with fiscal policy employed during WWII, which promoted greater equality in the distribution of income.

Financialization and Society’s Protective Response: Reconsidering Karl Polanyi’s Double Movement

Abstract: Financialization challenges Karl Polanyi’s thesis of double movement, the thesis that efforts to extend the market evoke efforts to protect humans, nature, and means of production from market forces. Financialization refers to the increased power of financial institutions. The government protects the incomes and assets of financial institutions, but it does little to protect the incomes and assets of households, which are necessary for people to afford healthcare, education, emergencies, retirement, and so on. Polanyi criticized nineteenth-century civilization for transforming land, labor, and the means of production into commodities, using economic insecurity to motivate humans. The development of intangible property allowed business to expand the market in two ways: (i) restricting output to drive up profits and (ii) liquefying consumer assets to provide credit to consumers to increase spending. The implications of that process manifested themselves in the financial crisis of 2008. Market capitalism represented the attempt to organize commodities based on economic rationality. Similarly, the twentieth- and twenty-first-century capitalism represents the effort to “rationally” organize society according to the value of intangible assets. Both efforts failed, indicating the continued relevance of Polanyi’s thesis.

Economic Waste and Social Provisioning: Veblen and Keynes on the Wealth Effect

Abstract: Economic waste stems from the abuse of power that interferes with the process of social provisioning. For Thorstein Veblen, waste stems from individual efforts to show superiority, corporate efforts to increase pecuniary returns without increasing industry, or national efforts to exert military dominance. For John Maynard Keynes, waste assumes the form of idle factories, unemployed workers, and unsold goods resulting from insufficient demand. From a broader perspective, waste results from the efforts of rentiers to increase their returns. Both dimensions of waste relate to the Fed and other central banks’ efforts to address the problem of social provisioning through the wealth effect. The ideas of Veblen and Keynes provide guidance for evaluating policy directed at enhancing the provisioning process. Based on Veblen’s ideas, policies should promote the life process and not conspicuous consumption. Based on Keynes ideas, policies should stimulate demand, increasing profits and, in turn, creating jobs.

The Stories That Economists Tell: Mainstream, Hyman Minsky, and Institutional Views of Consumer Behavior

Abstract: The financial crisis of 2008 provided an informal test of mainstream and institutional views of consumer behavior. The test posed by the financial crisis assumes the form of a “story.” A successful story provides a reasonably coherent explanation of events, confirming our beliefs and justifying our policies. First, the article examines the failure of mainstream economics to present a coherent story of consumer behavior. Ignoring the relevance of assumptions, as Milton Friedman advocated, leads economists to hypostasize the model, filtering information central to the crisis. Second, Minsky’s discussion of consumer behavior and its effect on cash inflows to businesses represents an institutional explanation regarding why John Maynard Keynes’s long-run vision did not occur. The third section expands on some of the themes addressed by Minsky, which are found among the contributions of institutional economists, focusing on efforts to mold institutions to increase cash inflows to corporations and protect those inflows.

A Veblenian Analysis of For-Profit Universities

Abstract: Education policy has been guided by two seemingly opposing forces: (i) broadening access to the community’s knowledge base and (ii) privatizing the costs of that access. Broadening access entails helping marginal students — the poor, minorities, single women, veterans, and so on. Privatizing access involves government-provided loans and grants totaling

Corporate Power and the Evolution of Consumer Credit

138 billion from 2010 to 2016 to students attending for-profit schools. This policy resulted in low graduation rates, while still enriching stock holders, giving them “something for nothing.” Addressing low graduation rates requires changing the accreditation of for-profit schools, a change that affects the allocation of federal funds, changes that the Obama administration tried to implement. The issue raises several questions. First, how would Thorstein Veblen view efforts to expand educational opportunities for students? Second, what factors gave rise to for-profit schools? And third, what policies can we enact to provide students with access to higher education?